Buying a home is an exciting and sometimes confusing process. Tap into our experience to make it easier by following our 10 Step Checklist for Buying A Home. We’ll guide you through the process with a handy and concise list. Join our many happy Adirondack Premier Properties clients who have successfully purchased the Adirondack real estate of their dreams!
Getting Started – Checklist for Buying a Home
Step 1 – Determine How Much Home You Can Afford
Before you start the search for your perfect home, take a close look at your financials. How much home you can afford is directly related to your current financial situation. Begin by reviewing how much debt you have. The lower your debt-to-income ratio, the larger your pre-approval could be.
Taking this important first step in our checklist for buying a home can help you avoid the disappointment of getting your heart set on a property you can’t afford. Setting a budget early in the process and sticking to it can save a lot of heartache.
To determine your debt-to-income (DTI) ratio, examine your monthly debt repayment expenses versus your monthly cash intake. Your debt includes any recurring bills like student loans, car payments or any other monthly based payments.
Most lenders suggest that your DTI should be lower than 43%. This number gives home purchasers a safety net and protection from being “House Poor.” The term “House Poor” means that too much of the homeowner’s income is going towards repaying the mortgage, leaving no or little funds left over for activities or improvements.
Having breathing room in your budget protects you from financial stress. If there is ever a major issue with the home, you will have the disposable income available to address the problem in a timely manner.
Step 2 – Save For Down Payment
Once you have determined your debt-to-income ratio, it is time to move on to the next item in our checklist for buying a home by checking your savings. Mortgages can require a sizable down payment, so it’s ideal to enter the process with a good chunk of money saved. The more you pay on the down payment, the more interest savings you will have over the life of the loan.
Some other things to consider while saving for your down payment:
- Depending on what mortgage you choose, a down payment of 20% or more may be required to avoid private mortgage insurance (PMI). The cost of PMI coverage is based on risk factors like DTI and credit score.
- Generally, the larger your down payment, the lower your interest rate. A larger down payment allows for a lower loan to value ratio. This decreases the lender’s risk and saves you interest in the long run
- A bigger down payment also means you owe less on the house which could mean smaller monthly payments and increased borrowing power for the future. This borrowing power could be used to qualify for car, credit or other financing loans.
If you are having trouble figuring out how to save for your down payment, here are some tips to consider:
- Set A Budget
- It can be hard to tell where you spend your money, especially if you don’t like to be on a budget. As you look at your financials and determine your DTI, look into what you are spending on everything. From online shopping to your normal Starbucks/morning coffee money, it can add up quickly. Once you determine where a majority of your money is going, set a budget.
- Be sure to include non-essentials that may add up quickly. A $5 coffee every day adds up to $1,825/year and if you add a $15 lunch, this is an additional $3,900/year leading to $5,725/year of spending. While this isn’t enough for a down payment, it would get you started!
- Automatically Put Money Into Your Savings
- If you have trouble sticking to a budget, this is another way to force yourself to save. Setting up automatic transfers from your account into savings will make it seem like you never had the money. You can only spend what’s in your one account. The money set aside could add up to significant extra savings.
- Get A Side Gig
- If setting a budget and automatically depositing isn’t saving money fast enough for you, it might be time to look into a side gig. Do you have any special talents? Do you have a vehicle? Do you have time for a second job?
- If you have any special talents, now might be the time to profit. From art work to carpentry, picking up some small side gigs can create an extra income stream and add to your savings.
- If you have a vehicle, you could join a rideshare app or deliver groceries during your free time or while you are already out and about.
- The final option could be applying for a second job that is per diem or part-time.
- Pay Off Minor Debt
- Do you have some minor debts? As they say, you need to pay money to make money. Paying off your smaller debts can free up more of your income to save.
- If you have any money currently saved, consider using it to pay off some of your debt. Imagine if the $300/month you were putting towards one of your debts could now be saved.
- Depending on how much debt you have, paying it off immediately may open more borrowing power for your new home.
Step 3 – Find A Real Estate Agent
Looking for a property by yourself may seem enticing. It’s easy these days to find and view properties with online resources, but working with a professional real estate agent can protect you from mistakes and mis-steps along the way. The small fee that you pay could actually lead to a nicer home at a better price.
Realtors often hear about properties faster than what the market shows! New listings can be available daily during the height of the real estate season, so working with a strong agent and agency can give you an inside track.
Some additional things experienced agents can do:
- Scout Prospective Homes
If you are working full time, it can be hard to find the time to stay on top of what is happening in neighborhoods, new listings and price reductions. A full or even part time agent is always watching market trends and listings. They can view prospective homes on your behalf so you don’t waste time seeing homes that don’t fit your criteria.
- Give Expert Knowledge On The Current Market
While real estate agents stay on top of what is going on in neighborhoods, they also study what the current market is doing. Is it a buyers market or a sellers market? These markets can have drastic effects on the price of homes as well as the rush or requirements needed to close on a home in a reasonable amount of time.
In a Buyers’ market there is a lot of inventory. Potential buyers enjoy many home options and demand might be lower. This normally means homes are priced for a little less and there are opportunities to add contingencies if needed.
During a Seller’s market, inventories are low and the demand is high, increasing prices. Contingencies may be more difficult to add on as sellers are more likely to accept bids that don’t have contingencies.
- Tell You If Asking Price Is Appropriate
Knowledge is power! Homes are a long term investment so making sure that you are making the right decisions on the property you are purchasing is important. Working with a strong agent can help you feel more comfortable when purchasing a home.
While there is always risk involved with any investment, an agent can protect you from yourself by informing you about current market conditions. They can also alert you if a property is priced appropriately by comparing them with similar listings in the same market.
Depending on the market even non-appropriately priced homes can go under contract. Agents are there to help you, so pushing you to buy a poor property does not reflect well on them.
- Help You With The Pros And Cons Of Homes
Similar to asking if the price is appropriate, real estate agents can help you keep track of the pros and cons of each home that you might be interested in.
- Let You Know About Neighborhoods Or Towns
While an agent is knowledgeable about the real estate market, they are normally well versed in the character of neighborhoods and towns. For example, in our region, Lake Placid is a tourist destination where home prices are generally higher than the surrounding towns. On the other hand, Saranac Lake is a little more affordable and has a larger sense of small town community with more art influence.
Every town and neighborhood has its own feeling; finding a strong local real estate agent will give you this insight so you can make the best decision for your home buying process.
- Help You Get the Mortgage Process Started
The mortgage process is pretty straightforward. Start by researching potential lenders and their products, then receive your pre-approval so you can plan on the amount of home you can afford. If you are struggling with the process, your agent may be able to recommend some local lenders they like using or have heard good things about from current or former clients.
- Negotiations And Bidding Wars
A real estate agent can guide you during negotiations and bidding wars that can occur during the home buying process. Negotiations and bidding wars can get messy and confusing, so having a full time real estate agent gives you protection on any issues that may a rise.
- Help Keep You Organized For The Closing Process
Home buying has a lot of ups and downs! These ups and downs can cause a lot of stress and confuse homebuyers about where they are in the process. A strong real estate agent guides you to make sure the right paper work is in and the inspections are done. They can help you stay in the ups instead of the downs, and enable the closing process to occur smoothly.
Finding the right agent is imperative to receive the right guidance especially when you get later on in the home buying checklist steps. They also look out for your best interest to take some stress off and help with the management of emotions during the ups and downs of buying.
Step 4 – Get Pre-Approval and Choose Lender
After finding an agent, the next step in the checklist for buying a home is choosing your lender and getting a pre-approval letter. This lets you and your agent know how much house you can afford. This is an important step and necessary. If it is a hot market, sellers want to have confidence that you will be able to purchase the home if you make an offer.
For pre-approval, the lender will pull your credit report and ask about your current financials to decide on a maximum loan amount. The lender will also help you determine a mortgage loan type that will work best for you. Getting pre-approval is not a commitment to a particular lender, so it is in your best interest to ask around to a variety of potential lenders to see what they can offer.
Some lenders may be able to offer some closing cost coverage or even a lower down payment depending on the loan. Depending on the seller or agency, it may be a requirement to view the home also. If you have already decided on a lender, you are one step ahead when it’s time to make an offer.
Step 5 – Start Your Home Search
You’ve reached the fun part of the checklist for buying a home! Starting your search with your real estate agent is an exciting time. Be sure to research different areas and ask lots questions of your agent, even those as small as what their favorite restaurant is in town.
Depending on the market, it can be overwhelming to start looking. Take your time and avoid being an anxious buyer. Your real estate agent will help you narrow down the search using the multiple listing service (MLS). Listings posted on MLS are more accurate and also show listings from other offices that have joined the service.
Offices on the MLS have an agreement that they can bring potential buyers to show any property that is available, even if it is not within the same office. This makes it easier for a client to stay with an agent they like.
Additionally, while doing research online, it may be tempting to rely solely on 360 Tours or video tours. However, at ADKPP we always suggest visiting homes in person to get a better sense of the community and flow of the house. Homebuyers should feel comfortable with the written information as well as the physical feel of the property they are purchasing.
When it comes time to make your final decision, more data and information helps you feel confident and have a more enjoyable process.
Step 6 – Make An Offer
You found “the one!” At this step in the checklist for buying a home, it’s time to shift focus back to finances to figure out the best purchase offer. Some factors affecting the offer could be the housing market, how long the house has been on the market, and whether there are other offers on the house.
In a slower market, home buyers often offer a slightly lower price than the seller’s asking price. In a hot market, an offer below asking will generally be rejected. Terms like how soon you want to be in the house and contingencies (including inspections or selling current house first) are also considered at this time. At this step, pre-approval can be an advantage showing the seller that you are serious buyer.
An offer may require an earnest money deposit to be put into escrow, generally 1 -3% of the home’s value. It will stay in the third-party account until your offer is accepted. Once accepted, it will be applied to the down payment and closing costs. This money can be lost if you change your mind, but it can be safeguarded through contingencies when you negotiate the offer. One such contingency to safeguard your earnest money is passing home inspection.
Step 7 – Hire Real Estate Attorney
Once your offer is accepted, it’s time to hire a real estate attorney. While this is technically not required in New York, we always suggest you have a lawyer, especially if there are any issues that occur. If there are any questions about the title or easements, they are there to help.
Real estate attorneys are equipped with the knowledge to answer legal questions as well as look over the agreement and other documents throughout the process. Also, in the Adirondacks, the APA could have requirements or restrictions on what can be done to the property. Finding a local and knowledgeable attorney will give you an extra safety net when purchasing.
Step 8 – Schedule Inspections
While everything in the home may seem perfect, it is hard to judge every aspect of a house’s integrity before you make an offer. This is why we always suggest that home buyers have a contingency to have a professional home inspector go through the home. While this is another fee on top of an expensive process, it is a necessary to protect you from any unforeseen damage that the home may have been hiding.
A professional home inspector will be able to tell you how much life is left in the roof, if there are any issues with the foundation and if the systems are up to par. The inspection will also reveal minor problems which are often quick fixes, and every inspection has them.
Some of the larger issues discovered could be used to your advantage as a bargaining chip for negotiating seller concessions or a reduced purchase price. Check with your real estate agent to find out if the issue is significant enough to change your offer. However, be aware that during a hot market, nickel and diming a seller may not end well for the buyer.
Step 9 – Prepare For Closing
Once you are happy with the inspection or negotiation, it’s time to prepare for closing! Make sure your finances are in order so when it comes time to pay for the closing costs, you will be ready.
To avoid further complications, don’t make any large purchases on your credit card or add a new line of credit before closing. These can affect your credit score and lead to an adjustment on your mortgage terms.
During this closing period, the lender will have an appraisal done on the property. If the appraisal is significantly lower than the agreed-on purchase price, you may ask the seller to lower the price or to assume some of the costs due at closing. Again, in a hot market, you may not receive this because values can change drastically and the appraiser may not be up to date on neighborhood pricing trends.
If there are renovations or improvements that you want to have done, you can discuss with current home owners to request permission to have contractors, painters or other tradesmen to view the property so you are able to get on their schedule. It is very difficult to schedule professional craftsmen in the Adirondacks, so finding one early and getting on their schedule will only benefit you.
This is also the time to look into homeowners insurance. If you are receiving a mortgage, you will have to show proof at the closing that you have coverage for the property you plan on buying.
Step 10 – Close
The big day is here! Dust off any hand stretches you know because it’s time to sign a tall stack of papers. Paperwork will be provided prior to closing for you to review. Make sure you bring all required documentation to your home closing.
The lender will give you a specific list of what they require, but the following items are usually needed:
- Identification
- Proof Of Insurance
- Check or Cashier’s Check To Cover Closing Costs
- Your Patience – did we mention the stack of paperwork?
Congratulations, you have completed the stack of paperwork and received the keys to your new house. Now is the time to enjoy the comfort and ambience of your new home!
The home buying process can be stressful if you are not used to the steps of the buying process. Take your time, gather information, work on your financial goals and find the right real estate agent. Following our 10 Step Checklist for Buying a Home can make the whole home buying process feel more like a breeze than a hectic mess. Contact us today or whenever you are ready to enlist the help of one of our experienced agents. Good luck!